TNS Finance’s Personal Risk Assessment and Risk Literacy Survey found that consumers have very little grasp of the basic principles of financial risk.
The disclosure paradigm of securities regulation is based on the concept that disclosure in a prospectus or other legally required document is sufficient to protect consumers. However, if studies have found that Canadians are largely financially illiterate and do not understand financial risk, the disclosure paradigm is a house built on sand. Regulators’ response is often to provide online financial literacy education. However, this recent survey found that only 10% of Canadians have increased their efforts to educate themselves on financial matters since the financial crisis. If government and regulators really want to protect consumers, they must go beyond disclosure and investor education. Financial education is necessary but not sufficient. Substantive regulation is needed to protect consumers, including requiring all advisors to act in the best interests of their clients and regulating marketing and advertising of financial products to ensure that it is fair, balanced and objective.
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